Ag Growth Announces First Quarter 2019 Results; Declares Dividends

WINNIPEG, May 7, 2019 /CNW/ - Ag Growth International Inc. AFN ("AGI", the "Company", "we" or "our") today announced its financial results for the three months ended March 31, 2019, and declared dividends for June, July and August 2019.

Overview of Results

Trade sales increased over the prior year as robust demand for AGI Farm equipment and contributions from recent acquisitions offset the impact of challenging winter conditions in North America and the timing of international sales. Adjusted EBITDA was consistent with record 2018 levels as strong gross margins and improved results in Brazil were offset by SG&A expenses related to market growth, primarily branding and advertising initiatives. Adjusted profit and adjusted profit per share decreased compared to 2018, largely due to increases in 2019 in non-cash interest expense and intangible amortization, and due to an income tax recovery in 2018, however the positive impact of non-cash gains on foreign exchange and the Company's equity compensation swap resulted in a significant increase in profit and diluted profit per share compared to the prior year.

"A very busy first quarter saw us close three important acquisitions," said Tim Close, President and CEO of AGI. "Our platform acquisition of Milltec in India provided AGI with expertise in rice milling solutions as well as a deep management team, beginning a new era for AGI given the significant growth opportunities in the rice vertical and in India and southeast Asia.  The Bin Manager sensor network and Field Data Manager tools, brought together in IntelliFarms' SureTrack grain management solution, opens new ways for us to add unique value for our customers and further differentiate AGI.  The acquisition of Improtech expanded our Food platform and provided AGI with additional expertise within the food and beverage industry. Our Q1 adjusted EBITDA remained consistent against a strong 2018 comparative, despite the impact of a long winter and the timing of international sales, and heading into Q2 and H2 2019 our outlook across AGI is positive with healthy backlogs in key businesses."

Diluted profit per share and diluted adjusted profit per share

Diluted profit per share in 2019 was $0.70 [2018 - $0.30]. Profit per share in 2019 and 2018 has been impacted by the items enumerated in the table below, which reconciles profit to adjusted profit. Adjusted diluted profit per share has decreased compared to 2018 largely due to a higher tax expense, the result of an income tax recovery in Q1 2018, and non-cash interest expense related to AGI's credit facility renewal in Q4 2018 and the redemption of AGI's 2014 Debentures.

OUTLOOK

Successive large crops in North America have resulted in sustained demand for AGI Farm equipment, particularly for portable grain handling equipment, while sales and backlogs of grain drying and aeration equipment have benefited from market share growth and wet conditions throughout North America. Orders for grain storage systems in the U.S. have been negatively impacted by difficult winter conditions, however management anticipates backlogs to grow in the near-term as U.S. farmers remain incented to add storage due to low commodity prices and a shortfall in existing storage capacity. Overall, AGI's backlog for Farm equipment is higher than at the same time in 2018 and management anticipates Q2 2019 and fiscal 2019 sales to increase over the prior year.

AGI's Commercial backlog in Canada remains very strong due to continued investment in Canadian commercial grain handling infrastructure, including in port facilities and inland terminals. In the United States, Commercial activity is expected to remain stable compared to the prior year. Offshore, sales in Q1 2019 were the second highest on record and backlogs remain above the very strong levels of 2018 due largely to a higher backlog in Brazil and contributions from acquisitions. AGI's quoting pipeline in EMEA and elsewhere is very active and management anticipates the current backlog will increase in the near-term. Commercial sales growth is anticipated in Q2 2019 and fiscal 2019, however the expectation remains that sales growth in all regions, including Brazil, will be weighted towards the second half.

On March 28, 2019, AGI announced the completion of its acquisition of Milltec, a manufacturer of rice milling and processing equipment in India. For the twelve months ended January 31, 2019, Milltec's sales and EBITDA were $56.2 million and $10.1 million, respectively. Milltec's results in calendar 2019 will be impacted by, among other things, the Indian monsoon season which is currently expected to approximate historical averages. Milltec's sales reflect agricultural seasonality in India, and historically approximately 70% of their sales have occurred in the first and fourth calendar quarters, while sales have been lowest in the second quarter of the calendar year. Management anticipates Milltec's historical seasonality will continue in 2019.

Overall, positive demand drivers for AGI Farm equipment, including the expectation of another large crop in North America, are expected to drive sales growth across all Farm product categories in 2019. Commercial sales are expected to benefit from existing backlogs and near-term opportunities, as well as the recent addition of Milltec in India. Management anticipates AGI sales and adjusted EBITDA for Q2 2019 and fiscal 2019 will increase compared to the prior year, with the most significant growth expected to occur in the second half of the year.

Trade sales and adjusted EBITDA in 2019 will be influenced by, among other factors, weather patterns, crop conditions, the timing of harvest and conditions during harvest and changes in input prices, including steel. The Company endeavors to mitigate its exposure to higher input costs through strategic procurement of steel, sales price increases and limiting the length of time commercial quotes remain valid; however, the pace and volatility of input price increases may negatively impact financial results. Other factors that may impact results in 2019 include the impact of existing and potential future trade actions, the ability of our customers to access capital, the rate of exchange between the Canadian and U.S. dollars, changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets, and the timing of Commercial customer commitments and deliveries.

Dividends

AGI today announced the declaration of cash dividends of $0.20 per common share for the months of June, July and August 2019. The dividends are eligible dividends for Canadian income tax purposes. AGI's current annualized cash dividend rate is $2.40 per share.

The table below sets forth the scheduled payable and record dates:

MD&A and Financial Statements

AGI's financial statements and management's discussion and analysis (the "MD&A") for the three months ended March 31, 2019 can be obtained at https://www.newswire.ca/news-releases/ and will also be available electronically on SEDAR (http://www.sedar.com) and on AGI's website (http://www.aggrowth.com).

Conference Call

Management will hold a conference call on Tuesday May 7, 2019, at 8:30 a.m. EDT to discuss AGI's results for the three months ended March 31, 2019. To participate in the conference call, please dial 1-888-390-0605 or for local access dial 416-764-8609. An audio replay of the call will be available for seven days. To access the audio replay, please dial 1-888-390-0541 or for local access dial 416-764-8677. Please quote passcode 736149# for the audio replay.

Company Profile

AGI is a leading provider of equipment solutions for agriculture bulk commodities including seed, fertilizer, grain, feed and food processing systems. AGI has manufacturing facilities in Canada, the United States, the United Kingdom, Brazil, France, Italy and India, and distributes its product globally.

Further information can be found in the disclosure documents filed by AGI with the securities regulatory authorities, available at www.sedar.com and on AGI's website www.aggrowth.com.

NON-IFRS MEASURES

In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with IFRS with a number of non-IFRS financial measures including "trade sales", "EBITDA", "Adjusted EBITDA", "gross margin", "funds from operations", "payout ratio", "adjusted profit", and "diluted adjusted profit per share".  A non-IFRS financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes [includes] amounts, or is subject to adjustments that have the effect of excluding [including] amounts, that are included [excluded] in the most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-IFRS financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

We use these non-IFRS financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-IFRS financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business.

In this press release, we discuss the non-IFRS financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable, and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures are contained in our MD&A.

Management believes that the Company's financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. These measurements are non-IFRS measurements. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.

References to "EBITDA" are to profit before income taxes, finance costs, depreciation and amortization. References to "adjusted EBITDA" are to EBITDA before the gain or loss on foreign exchange, non-cash share based compensation expenses, gain or loss on financial instruments, , M&A expenses, other transaction and transitional costs, gain or loss on the sale of property, plant & equipment, gain or loss on disposal of assets held for sale and fair value of inventory from acquisitions and impairment. Management believes that, in addition to profit or loss, EBITDA and adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. Management cautions investors that EBITDA and adjusted EBITDA should not replace profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. See "Operating Results – Three Months Ended March 31, 2019 - EBITDA and Adjusted EBITDA" in our MD&A for the reconciliation of EBITDA and Adjusted EBITDA to profit before income taxes.

References to "trade sales" are to sales net of the gain or loss on foreign exchange. Management cautions investors that trade sales should not replace sales as an indicator of performance. See "Operating Results - Trade Sales" in our MD&A for the reconciliation of trade sales to sales.

References to "gross margin" are to trade sales less cost of inventories, and thereby exclude depreciation and amortization from cost of sales. Management believes that gross margin provides a useful supplemental measure in evaluating its performance. See "Operating Results – Three Months Ended March 31, 2019 – Gross Margin" in our MD&A for the calculation of gross margin.

References to "funds from operations" are to adjusted EBITDA less IFRS 15 adjustment, interest expense, non-cash interest, cash taxes and maintenance capital expenditures. Management believes that, in addition to cash provided by (used in) operating activities, funds from operations provide a useful supplemental measure in evaluating its performance. References to "payout ratio" are to dividends declared as a percentage of funds from operations. See "Funds from Operations and Payout Ratio" in our MD&A for the calculation of funds from operations and payout ratio.

References to "adjusted profit" and "diluted adjusted profit per share" are to profit for the period and diluted profit per share for the period adjusted for the gain or loss on foreign exchange, fair value of inventory from acquisitions, M&A expenses, other transaction and transitional costs, gain or loss on financial instruments, gain or loss on sale of property, plant and equipment and impairment charge. See "Detailed Operating Results – Diluted profit per share and Diluted adjusted profit per share" in our MD&A for the reconciliation of diluted profit per share and diluted adjusted profit per share to profit.

In addition, the financial information in this press release relating to Milltec's sales and EBITDA is derived from Milltec's financial statements, which are prepared in accordance with generally accepted accounting principles in India, which differ in some material respects from IFRS, and accordingly may not be comparable to the financial statements of AGI or other Canadian public companies.

FORWARD-LOOKING INFORMATION

This press release contains forward-looking statements and information [collectively, "forward-looking information"] within the meaning of applicable securities laws that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and the words "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "postulates", "predict", "will" or similar expressions suggesting future conditions or events or the negative of these terms are generally intended to identify forward-looking information. Forward-looking information involves known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. In addition, this press release may contain forward-looking information attributed to third party industry sources. Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which it is based will occur. In particular, the forward-looking information in this press release includes information relating to our business and strategy, including our outlook for our financial and operating performance including our expectations for our future financial results including sales, EBITDA and adjusted EBITDA, industry demand and market conditions, and with respect to our ability to achieve the expected benefits of recent acquisitions and the contribution therefrom including from purchasing and personnel synergies and margin improvement initiatives. Such forward-looking information reflects our current beliefs and is based on information currently available to us, including certain key expectations and assumptions concerning: anticipated grain production in our market areas; financial performance; the financial and operating attributes of recently acquired businesses and the anticipated future performance thereof and contributions therefrom; business prospects; strategies; product and input pricing; regulatory developments; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; political events;  currency exchange and interest rates; the cost of materials; labour and services; the value of businesses and assets and liabilities assumed pursuant to recent acquisitions; the impact of competition; the general stability of the economic and regulatory environment in which the Company operates; the timely receipt of any required regulatory and third party approvals; the ability of the Company to obtain and retain qualified staff and services in a timely and cost efficient manner; the timing and payment of dividends; the ability of the Company to obtain financing on acceptable terms; the regulatory framework in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services. Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking information, including changes in international, national and local macroeconomic and business conditions, as well as sociopolitical conditions in certain local or regional markets, weather patterns, crop planting, crop yields, crop conditions, the timing of harvest and conditions during harvest, the ability of management to execute the Company's business plan, seasonality, industry cyclicality, volatility of production costs, agricultural commodity prices, the cost and availability of capital, currency exchange and interest rates, the availability of credit for customers, competition, AGI's failure to achieve the expected benefits of recent acquisitions including to realize anticipated synergies and margin improvements; and changes in trade relations between the countries in which the Company does business including between Canada and the United States. These risks and uncertainties are described under "Risks and Uncertainties" in our MD&A, our annual MD&A and in our most recently filed Annual Information Form, all of which are available under the Company's profile on SEDAR [www.sedar.com]. These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking information. We cannot assure readers that actual results will be consistent with this forward-looking information. Readers are further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. These estimates may change, having either a negative or positive effect on profit, as further information becomes available and as the economic environment changes. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information included in this press release is made as of the date of this press release and AGI undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.

SOURCE Ag Growth International Inc. (AGI)

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